T09634 - [2025] UKFTT 01097 (TC)

The employment summary for Ms S that was furnished to the Tribunal disclosed that she had commenced working for her other employer on 1 October 2020 and left that employment on 31 December 2021. She commenced work with the appellant on 4 January 2021 and left that employment on 31 August 2022. We accepted the submission for the appellant, which is consistent with the correspondence, that the appellant had not known when Ms S terminated her previous employment and had not anticipated that it would have lasted as long as it clearly did. That was not a mere “handover” as the appellant had been led to believe.

Undoubtedly there was an underpayment of tax and the figure of £8,888 was not challenged.

We agree with, and adopt, Judge Redston’s analysis of the Regulations about codes at paragraphs 50 to 59 of Sci-Temps. In particular, we agree with her conclusion at paragraph 57 to the effect that:

“57.

The above provisions require the employer to use the ‘code’ provided by HMRC when making any payment of earnings to an employee. It is clear from Regs 1, 7 and 8 that the ‘code’ is ‘a combination of letters, numbers or both’ or ‘one of the special codes, whether expressed in words or represented by a combination of letters, numbers or both’. The information about ‘previous pay and tax details’ is not part of the ‘code’”.

We note from the P11 Deductions Working Sheets that for the three pay periods in the tax year 2020/21 the appellant applied the tax code BR, for the first 11 pay periods in the tax year 2021/22 the appellant applied the tax code DO and for the twelfth the tax code 877T.

Ms S had never furnished a P45 and indeed it would only have become available when she left the other employer on 31 December 2021 and at that point she had been in the appellant’s employ for a year.

Regulation 53 prescribes what an employer should do where there is no P45 and we referred Ms Halfpenny to Regulation 53(2)(b). We did so because HMRC had not addressed Regulation 53 and, as can be seen from paragraphs 27 and 28 above, since taking professional advice, the appellant has consistently argued that the obligation to include previous pay and tax details in the working sheets only arises where the information is provided in a P45 or HMRC furnish the information with the first tax code (ie Regulation 53(2)(b)).

In their Review Conclusion letter and at paragraph 40 of their Skeleton Argument HMRC merely said elliptically that:

“The Appellant …. says the code issued in March 2022 was the third code one (sic) in respect of the employee. The Respondents dispute this, it was in fact the first code issued in that tax year, following a change to the employee’s circumstances.”.

We disagree. The 877T tax code was indeed the third tax code issued in the 2021/22 tax year. It did not say that the previous pay and tax figures were derived from Ms S’s P45. There was no explanation of the figures. The first and second tax codes issued in the tax year contained no figures for pay or tax.

We find that the appellant did use the tax codes furnished to them by HMRC and thus complied with the Regulations in that regard.

What about the Regulation 80 Determination? HMRC argue that it was valid.

Regulation 67G provides that RTI employers, such as the appellant, must pay HMRC “the sum total of the relevant amounts” for each employee. As can be seen from paragraph 39 above, the relevant amount is “the total net tax deducted in relation to this employment” (paragraph 17 of Schedule A1). The appellant argues that that is precisely what they did as they were required only to utilise the payments actually deducted in the deductions working sheets.

However, HMRC argue that Regulation 80(1A)(a) provides that the tax payable under Regulation 67G is the tax that “the employer was liable to deduct” and that that is different to the tax actually deducted. Well, of course it can be different.

It is common ground that HMRC had not issued certificates deeming a liability to tax to arise in terms of Regulation 75A.

It is trite law but we can really do no better than to quote Lord Dunedin’s well known statement in Whitney v Commissioners of Inland Revenue [1925] UKHL TC 10 88 that:

“Now, there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay”.

In this case the Determination is the assessment which is the second stage but the problem for HMRC is that they have quite simply failed to establish that the appellant was liable to include the pay and tax figures from the other employment in the deductions working sheets.

Although the facts are undoubtedly different, we agree with Judge Redston at paragraph 67 of Sci-Temps that there is no legal obligation on an employer to include “previous pay” or, in this case, the “other pay” in a deductions working sheet unless either:

We therefore conclude that there was no failure to comply with the Regulations and no basis for the Determination. It was not valid. We find that the appellant was overcharged by the Determination and in terms of section 50(7) TMA we reduce the Determination to NIL and allow the appeal.

That being the case we do not require to consider whether the appellant exercised reasonable care and acted in good faith.

HMRC did not really address that beyond saying that the then accountant’s error was the responsibility of the appellant.

The appellant made brief submissions.

Had we had to address these points we would have found that: